Starting & Structuring a Business

Choosing the right entity structure is one of the most consequential decisions a business owner makes — it affects taxes, liability, succession, and your ability to raise capital. Pennsylvania recognizes several entity types, each with distinct advantages:

Entity Types

Limited Liability Company (LLC) — The default choice for most small businesses. An LLC provides personal liability protection while allowing pass-through taxation. Pennsylvania LLCs are formed by filing a Certificate of Organization with the Department of State ($125 online). An operating agreement — while not required by law — is essential. Without one, the PA Uniform Limited Liability Company Act of 2016 (15 Pa.C.S. Ch. 89) supplies default rules that may not match your intentions.

Corporation (C-Corp or S-Corp) — Appropriate for businesses planning to raise outside investment or with multiple shareholders. C-Corps are subject to double taxation (corporate + individual). S-Corp election (IRS Form 2553) avoids double taxation but limits you to 100 domestic shareholders. PA imposes a corporate net income tax (currently 7.99%, decreasing annually to 4.99% by 2031).

General Partnership — Formed automatically whenever two or more people conduct business together for profit. This is dangerous: each partner has unlimited personal liability for all partnership debts and obligations. If you're operating with a partner and haven't formed an LLC, you are a general partnership — whether you intended to be or not.

Limited Partnership (LP) — Common in real estate and investment structures. General partners manage and bear unlimited liability; limited partners invest and have liability limited to their investment. Requires filing with the Department of State.

Sole Proprietorship — No formation required, no liability protection. The owner and the business are legally identical. Fine for very low-risk ventures, but for most businesses, the modest cost of forming an LLC is well worth the protection.

Essential Formation Steps

• Choose entity type and file with PA Department of State
• Obtain an EIN from the IRS (free, online, immediate)
• Draft operating agreement (LLC) or bylaws (corporation) — do not skip this
• Register for PA business taxes (Revenue, UC, Workers' Comp)
• Open a dedicated business bank account (never commingle personal and business funds)
• If using a trade name, file a Fictitious Name Registration (form DSCB:54-311)
• Obtain local business licenses and zoning approvals as required by your municipality